One of the common questions prospective franchisees ask during the discovery phase of their franchise opportunity centers on the ability to sell the franchise. Generally, the franchisee is informed that it can be sold just like any other business. That is only partially true. Unfortunately, for the inexperienced franchisee, they will not find that out until many years down the road. While many businesses are sold based upon a multiple of the earnings of the business, this does not always hold true for franchises. You see, in the sale of a franchise, there is another party which must be dealt with, and that is the franchisor.
Just because you want to sell your business does not mean that it can even be sold. Remember, every potential buyer must meet the requirements of the franchisor and the landlord, just as you had to. The next hurdle is the price. This is where things get a little tricky. For basic illustrative purposes, assume the business nets $100,000 and you want to sell it for a multiple of five, or $500,000. Obviously, there are many factors that go into determining worth, so this is just an extremely basic example.
How realistic is it that you can command that price? Well, you will need to consider several factors. First, how many years are left on the current agreement and how many renewal options are left? Does the franchisor have the ability to decline the options? If you do not have enough years left on your term to enable the prospective buyer to get a proper return on the investment, your sale price will be reduced. An independent business does not have to deal with this concern.
A second variable that plays a part is the cost to transfer ownership. Many franchise agreements require the buyer to pay a transfer fee. However, that is not usually the biggest stumbling block. Generally, the franchisor will require that the unit be brought up to the current specifications and will invoke the mandatory remodeling costs to bring it current. In most cases, that amount, plus the transfer fee, will come off of the sale price. If a broker is involved, there is also that fee to deal with.
Finally, depending on the chain, your location and footprint of your building may not fit the current model or look the franchisor is using. Therefore, upon sale, the buyer may be approved however the location may not. The buyer may be required to relocate the business. If that is the case, you really have very little to sell.
All of these factors, plus many more, will play a huge part in determining what you will get for your business, IF you can sell it.
A current successful entrepreneur and multi-unit franchisee for over 16 years as the initial franchisee of a restaurant concept, David Kajganich has continually sought lucrative opportunities that are in the early stages of success. His goal and purpose is to help and mentor others to achieve the success of their dreams.
Check out his latest ventures at http://www.myspace.com/everlastingwealth
http://www.NoFranchiseNeeded.com
Nobody cares how much you know until you show them how much you care.
Article Source: http://EzineArticles.com/?expert=David_Kajganich
Posted by mbuhlah, Monday, April 21, 2008 5:25 AM
| 0 comments |
Just because you want to sell your business does not mean that it can even be sold. Remember, every potential buyer must meet the requirements of the franchisor and the landlord, just as you had to. The next hurdle is the price. This is where things get a little tricky. For basic illustrative purposes, assume the business nets $100,000 and you want to sell it for a multiple of five, or $500,000. Obviously, there are many factors that go into determining worth, so this is just an extremely basic example.
How realistic is it that you can command that price? Well, you will need to consider several factors. First, how many years are left on the current agreement and how many renewal options are left? Does the franchisor have the ability to decline the options? If you do not have enough years left on your term to enable the prospective buyer to get a proper return on the investment, your sale price will be reduced. An independent business does not have to deal with this concern.
A second variable that plays a part is the cost to transfer ownership. Many franchise agreements require the buyer to pay a transfer fee. However, that is not usually the biggest stumbling block. Generally, the franchisor will require that the unit be brought up to the current specifications and will invoke the mandatory remodeling costs to bring it current. In most cases, that amount, plus the transfer fee, will come off of the sale price. If a broker is involved, there is also that fee to deal with.
Finally, depending on the chain, your location and footprint of your building may not fit the current model or look the franchisor is using. Therefore, upon sale, the buyer may be approved however the location may not. The buyer may be required to relocate the business. If that is the case, you really have very little to sell.
All of these factors, plus many more, will play a huge part in determining what you will get for your business, IF you can sell it.
A current successful entrepreneur and multi-unit franchisee for over 16 years as the initial franchisee of a restaurant concept, David Kajganich has continually sought lucrative opportunities that are in the early stages of success. His goal and purpose is to help and mentor others to achieve the success of their dreams.
Check out his latest ventures at http://www.myspace.com/everlastingwealth
http://www.NoFranchiseNeeded.com
Nobody cares how much you know until you show them how much you care.
Article Source: http://EzineArticles.com/?expert=David_Kajganich
Labels: Franchise Opportunity
